Difference between revisions of "Protecting Property and Debt in Family Law Matters"

It's sometimes necessary to take steps to protect family property, family debt and excluded property until an agreement or order dividing assets between a couple is made. Failing to take steps to protect property can sometimes result in an asset being sold, lessened in value, used as collateral for a loan, moved to another jurisdiction, or being seized by a trustee in bankruptcy or a creditor. Most of the time it only becomes important to protect assets after a couple have separated.

This chaper will also review some of the steps available to unmarried couples to protect property.

==Initial Steps==

It may seem at bit neurotic to be worrying about assets when your relationship is falling apart, but this is precisely the time to be concerned. It certainly is not the case that every spouse is busy squirrelling money away in Switzerland or Antigua, or hatching plans to transfer the title of the family home to a loan shark from Las Vegas, but there are certain steps you should take regardless of how well you think you know your spouse. There is, as they say, no sense in bolting the barn door after the horses are gone. It is quite reasonable to take steps to protect your own interests and it is only prudent that you should do so.

===Survey the Family Assets===

===Get a Triggering Event===

Once you have separated and an action has started, make sure a triggering event happens as soon as possible. A triggering event crystallizes each spouse's presumptive one-half interest in the family assets as tenants in common and can be critical to protect your one-half of the property from creditors, bankruptcy, or court orders made in unrelated actions. The four triggering events, which are described in more detail in the first chapter of this section, Family Assets, are:

There are only a few times when a triggering event is a bad idea, usually when the triggering event will cap an claim to one-half, when there's no chance that the claim will be less than one-half an a good chance that it might be more. Say, for example, that one spouse is in poor health and dying when the other spouse gets a triggering event. The triggering event means that the surviving spouse will get no more than half of the deceased spouse's estate when the survivor might have received more than half under wills and estates law.

While it's always a good idea to consult with a lawyer if you have a family law problem, be especially sure to do so if you're not certain whether a triggering event would be helpful or harmful.

===Register an Interest in Real Property===

Registering an interest in real property will stop the asset from being sold and may stop the asset being borrowed against. The two most common ways to do this are by filing a Certificate of Pending Litigation under the Land Title Act or an Entry under the Land (Spouse Protection) Act with the Land Title and Survey Authority.

Where real property is involved and an action has started, you should register a CPL, formerly called a lis pendens, against the title of the property at the Land Title and Survey Authority. As long as you have asked for a CPL in your Notice of Family Claim or Counterclaim and made a claim for the division of family assets, you will be entitled to register a CPL. The effect of a CPL is to announce to anyone interested in the property, such as a mortgagee or a creditor or a potential buyer, that ownership of the property may change as a result of the litigation, discouraging the sale or the use of the property as collateral.

You can file for your CPL at the same time as you file your Notice of Family Claim or Counterclaim. The registry will stamp your CPL and you must take the stamped CPL and file it in the Land Title and Survey Authority together with a copy of your Notice of Family Claim or Counterclaim.

====Entries under the Land (Spouse Protection) Act====

If, for some reason, you cannot obtain a CPL, you may be able to file an Entry with the Land Title and Survey Authority against the title of the matrimonial home under the provincial Land (Spouse Protection) Act. The Entry will prevent the your spouse from transferring, selling, leasing or making a gift of the family home without your consent.

The interesting thing about Entries under the Land (Spouse Protection) Act is that you can get one whenever you like as long as you are married, whether litigation has started or not. This is an ideal way to protect yourself if you only have a slight concern about your relationship or the trustworthiness of your spouse, but don't intend to sue him or her just yet.

The protection an Entry gives is only available to married spouses. The protection will end when an order for divorce is pronounced and the parties are no longer "spouses." An Entry under the Land (Spouse Protection) Act only protects the family home, not any other property the couple might own.

====Notices under the Family Relations Act====

Married spouses who have made a separation agreement dealing with real property can file a notice of the agreement against the title of the property with the Land Title and Survey Authority under s. 63 of the Family Relations Act. The notice will prevent the other spouse from transferring, selling, leasing or otherwise dealing with the property without the voluntary cancellation of the notice or a court order removing the notice.

D. Downloads

The links below will open sample documents in a new window. You will require Adobe Acrobat Reader to view these files, a free program available for download from Adobe Software.

Land (Spouse Protection) Act Form A: Affidavit in support of entry

These sample documents are just that: samples. While they represent a more or less accurate picture of how Jane Doe might fill out her forms, they may not be applicable to your situation. Use them as a reference only together with the official court form. This CPL is the form used where the underlying property claim is made under the Family Relations Act. The form for unmarried couples is demonstrated at the bottom of this page.

Areas where the court form offers a choice or where you must supply information are indicated in burgundy text.

A restraining order is a court order requiring someone to do something or to not do something. A typical restraining order relating to family assets reads something like this:

"the Respondent shall be and is hereby restrained from disposing or encumbering, or attempting to dispose of or encumber, the family assets and other assets at issue without the express written agreement of the Claimant or the further Order of this Honourable Court."

The easiest way for married spouses to obtain a financial restraining order is to apply for an order under s. 67 of the Family Relations Act. This section states that:

The order must be granted on the application of a party, unless the application respondent can show that there are enough assets that the applicant's claim to the property won't be frustrated if the application respondent happens to sell some of the assets.

The order can be made ex parte, without the other party knowing of the application.

The order includes not just "family assets" but all assets at issue, which might include, for example, a claim against something which isn't usually considered a family asset, like an inheritance.

This is a powerful order and should probably be obtained whenever a claim is being made for the division of assets. Again, this is a matter of simply being prudent. You may have no cause to believe that your spouse would do something that would jeopardize your interests, but it almost always pays to be cautious.

This restraining order is only available to married couples. Unmarried couples can get a similar sort of order under Rule 12-4 of the Supreme Court Family Rules.

===Other Sources of Restraining Orders===

Rule 12-4 of the Supreme Court Family Rules gives the court the authority to make a general restraining order, also called an injunction, to force someone to do something or not do something. The same authority is given to the court by s. 39 of the provincial Law and Equity Act. This can include, for example, a restraining order identical to that provided for in s. 67 of the Family Relations Act; you're just not asking for the order under that particular act, you're asking for it under the Law and Equity Act or the rules of court.

These types of restraining order are discussed more fully below, in the segments dealing with assets located outside British Columbia and with unmarried couples and the protection of assets.

==Debts, Bankruptcies and Third Party Claims==

Apart from the possibility that your spouse will be less than forthright in dealing with the assets, you may also need to protect your interest in those assets from claims made by creditors, third parties, and against the prospect of your spouse's bankruptcy. These issues can be dealt with, for the most part, by ensuring that you:

obtain a financial restraining order under s. 67 of the Family Relations Act, s. 39 of the Law and Equity Act or Rule 12-4 of the Supreme Court Family Rules.

Assets that are owned only by your spouse, or by both of your as joint tenants, may be vulnerable to your spouse's creditors and in the event of his or her bankruptcy. Say, for example, your spouse has put up his or her car as collateral for a loan. You would normally be entitled, on divorce, to one-half the car's value as a family asset. If your spouse defaults on the loan, the car can be seized and you could find, especially where there are few other assets, that you can get no compensation for your interest in the car's value, even if you helped your spouse with the loan payments or the downpayment.

Your spouse's creditors or trustee in bankruptcy will not usually be able seize assets held only in your name or your interest in property as a tenant in common unless you are responsible for your spouse's debts for some reason, like co-signing or guaranteeing a loan, or using a secondary credit card on your spouse's account.

seize any asset put up as collateral on the loan;

put a lien on property owned by the debtor;

force the sale of the debtor's property to meet the debt; or,

Any one of these remedies can harm the interest the other spouse has in what would otherwise be a family asset, even if the other spouse had nothing to do with how or why the debt was incurred.

A triggering event can help to shield the innocent spouse's presumptive one-half interest in the family assets from creditors and limit their ability to recover to the other half of the family assets.

===Third Party Claims===

Your spouse might be liable for damages or debt to someone in a legal action unrelated to your divorce. Your spouse may also have made a deal with someone outside the family that concerns the family assets. Those people, people who are not parties to your action against your spouse, may have a legitimate claim against the family assets. The problem is that even though their claim or entitlement may be restricted to property owned by your spouse in his or her name alone, your interest in that property may be lost if a third party gets there first.

As we've discussed, both spouses have a prima facie interest in all family assets, including those owned only by the other spouse. A third party claim or entitlement can result in the loss of an asset or in the loss of value of an asset. By the time the family assets are divided, without a triggering event or restraining order, those assets might very well be in the hands of someone else and no longer be available for division.

A triggering event can help to shield the innocent spouse's presumptive one-half interest in the family assets from third parties and limit their ability to recover to the other half of the family assets. A restraining order, in this case a restraining order against the third party, can temporarily suspend the third party's ability to realize their claim against the family assets.

If an asset is a family asset, the transfer of the asset to the trustee may deprive the non-bankrupt spouse of any interest he or she might have in that asset and, since the owning spouse is bankrupt, he or she won't have other financial resources from which to compensate the non-bankrupt spouse for the lost interest.

A trustee in bankruptcy cannot take property that doesn't belong to the bankrupt. A triggering event obtained before bankruptcy will prevent the trustee from dealing with the other spouse's one-half interest in the family assets, including assets registered in only the name of the bankrupt spouse.

==Dealing with Assets outside British Columbia==

There is an exception to this general rule, but bear with me, this is all a bit complex.

The Supreme Court of British Columbia can make an order requiring a person to do or not do something when that person accepts the authority of the court, even where that person lives outside the province.

A persona is deemend to have "accepted the authority of the court" by responding to a law suit. Once an out-of-province Respondent files a Response to Family Claim in reply to the Claimant's Notice of Family Claim, he or she has accepted the jurisdiction of the court to deal with the litigation. This is called "attorning to the jurisidiction."

When someone attorns to the jurisdiction of the courts of British Columbia, they submit to the court's authority. The court still doesn't have the jurisdiction to make orders about things located outside the province, but it does have the jurisdiction to make orders about the person located outside the province. This is called "in personam jursidiction."

A court with in personam jurisidiction over someone can make orders requiring the person to do or not do things involving certain kinds of things located outside the province, such as assets like bank accounts, stocks, investment accounts and similar assets that aren't real estate. These assets are called "movable assets."

Whether a court has in personam jurisidiction or not, it usually won't have jurisdiction over real property located outside the province. This kind of jurisdiction is called "in rem jurisdiction." Real property is called an "immovable asset."

The Provincial Court of British Columbia lacks the jurisdiction to deal with people, personal property and real property locted outside the province.

 

===Real Property===

Generally speaking, subject to the exception discussed below, there is nothing that can be done to stop someone from selling or otherwise dealing with real property located outside of British Columbia, even property that would normally qualify as a family asset. Usually, the only way to protect that asset from sale or being used as collateral is to start a law suit in the jurisdiction in which the the property is located.

The courts of this province will, however, usually compensate a spouse for an interest in out-of-province property by reapportioning the property that the court can deal with, property located inside British Columbia, to compensate for the property that it can't deal with. Here's an example:

Spouse A has a farm in Flin Flon, Manitoba worth $50,000. Spouse A and Spouse B both own the family home in Vernon, British Columbia worth $100,000. Assuming both properties are family assets and the court was to divide the family assets equally, each of the spouses would be entitled to $25,000 for the farm in Manitoba and $50,000 for the family home in British Columbia.

Since the court can't make an order requiring the sale or transfer of the property in Flin Flon, an equal division of the assets in the jurisdiction would give each spouse $50,000, half the value of the family home, but this would short Spouse B of his interest in the farm. To avoid this unfairness, the could simply reapportion the family home in Vernon in favour of Spouse B, and give him a $75,000 share rather than an equal share.

This would reapportion the value of the property the court can deal with (the family home) to compensate Spouse B for the interest Spouse B ought to have in the property the court can't deal with (the farm). Spouse A is still left with half of the family assets, as she remains the sole owner of the farm, $50,000, and gets a $25,000 share of the family home, for a total property interest of $75,000.

In truly exceptional circumstances, it is possible to get an order stopping someone from disposing of real property located outside the province with something called a "Mareva injunction." A Mareva injunction will stop someone from selling or encumbering assets outside of British Columbia, providing that certain conditions are met. (The name of this order comes from an old United Kingdom case in which the relief was first granted, Mareva Compania Naviera S.A. v. International Bulkcarriers S.A.) To qualify for this order, you must:

Where a spouse has accepted the court's authority, the court can make a restraining order stopping the spouse from disposing of liquid assets located outside of British Columbia under s. 67 of the Family Relations Act.

Section 67 orders are discussed above. Inside British Columbia, a s. 67 order will stop a spouse from dealing with everying that qualifies as a family asset, including real property. Outside British Columbia, a s. 67 restraining order will only stop a spouse from dealing with movable assets, such as RRSPs, stocks, bank accounts, chattels and so forth.

The court can be reluctant to issue a s. 67 order that is intended to deal with assets located outside the province, since in most cases the courts of British Columbia cannot make orders about things located outside the province. The Court of Appeal however, in a 2002 case called Boyd v. Boyd (no relation), confirmed that the court can make in personam restraining orders which are effective against movable assets located outside the province.

If a s. 67 order is not available for some reason, a Mareva injunction will have the same effect, however Mareva injunctions are not granted automatically and you must satisfy the test described just above.

==Unmarried Couples and the Protection of Assets==

Unmarried couples are expressly excluded from the two parts of the Family Relations Act that deal with the division of property. Unfortunately, the most common and simplest way of protecting assets, a financial restraining order under s. 67 of the act, is in one of these parts.

Rule 12-4 says little more that "the court can issue an injunction." A 1986 case of the British Columbia Court of Appeal, British Columbia v. Wale, offers a litle more guidance. In that case, the court held that someone applying for an injunction had to prove three things. In a family law context involving unmarried parties, these are that:

the person applying for the order has a reasonable claim against the other person's assets;

the person who owns the assets has disposed or encumbered those assets, or is likely to sell or encumber those assets; and,

the inconvenience suffered by the owner as a result of the injunction is less severe than the inconvenience the applicant will suffer if the injunction isn't granted.

If you are applying for an injunction without notice to the other party, the court will required that you make full and complete disclosure of all of the relevant facts, even those facts that aren't in your favour. If it is discovered that you haven't made full disclosure, the court can set aside the injunction, make an award of costs against you, or make an award of damages to compensate the other party for any inconvenience caused by the injunction.

 

 

Section 39 of the provincial Law and Equity Act offers much the same relief as Rule 12-4 of the Supreme Court Family Rules. Section 39 reads, in part, as follows:

 

(1) An injunction ... may be granted ... in all cases in which it appears to the court to be just or convenient that the order should be made.

(2) An order made under subsection (1) may be made either unconditionally or on terms and conditions the court thinks just.

(3) If an injunction is requested either before, at or after the hearing of a cause or matter, to prevent any threatened or apprehended waste or trespass, the injunction may be granted if the court thinks fit, whether the person against whom the injunction is sought is or is not in possession under any claim of title or otherwise or, if out of possession, does or does not claim a right to do the act sought to be restrained under any colour of title, and whether the estates claimed by both or by either of the parties are legal or equitable.

This section gives the court a fairly broad authority of make injunctions where such injunctions are justified. Much like injunctions under Rule 12-4, you will have to show that:

you have a reasonable claim against the other person's assets;

the other person has disposed or encumbered his or her assets or is likely do so; and,

that the inconvenience suffered by the owner as a result of the injunction is less severe than the inconvenience you will suffer if the injunction isn't granted.

If you are applying for an injunction without notice to the other party, the court will required that you make full and complete disclosure of all of the relevant facts, even those facts that aren't in your favour. If it is discovered that you haven't made full disclosure, the court can set aside the injunction, make an award of costs against you, or make an award of damages to compensate the other party for any inconvenience caused by the injunction.

===Certificates of Pending Litigation===

Where real property is involved and an action has started, an unmarried party can register a Certificate of Pending Litigation, formerly called a lis pendens, against the property at issue with the Land Title and Survey Authority. As long as you have asked for a CPL in your Notice of Family Claim or Counterclaim, you will be entitled to register this document in the Land Title and Survey Authority. The effect of a CPL is to announce to anyone interested in the property, such as a mortgagee or a creditor or a potential buyer, that the title to the property may change as a result of the litigation you are involved in.

The link below will open a sample document in a new window. You will require Adobe Acrobat Reader to view this file, a free program available for download from Adobe Software.

In this sample, our fictitious Claimant, Jane Doe, is putting a CPL against the title to a piece of property owned by her partner, John Smith.

This sample document is just that: a sample. While it represents a more or less accurate picture of how Jane Doe might fill out her form, it may not be applicable to your situation. Use it as a reference only together with the official court form. This CPL is the form used where the underlying property claim is not made under the Family Relations Act.

Areas where the court form offers a choice or where you must supply information are indicated in burgundy text.